Crisis Instruments and Business Dynamics: How Asset Purchases Shape Plant Exits and Entries

Abstract

Asset purchase programs (APPs) may allow banks to continue lending to low productive borrowers. We use administrative plant and bank data to test whether APPs changed business dynamics in terms of plant entry and exit. Plants in Germany linked to banks with access to an APP are approximately 20% less likely to exit. In particular, low productive plants linked to weakly capitalized banks are less likely to close, which we interpret as evidence for subdued factor reallocation. Meanwhile, well-capitalized banks enable productive plants to survive longer, and employment increases mildly.

Keywords: Plant exits, extensive margin factor reallocation, asset purchase programs